If Restricted Stock or RSUs are issued to more than 200 employees or officers of the Subsidiary, this may constitute a "public offering." A public offering is subject to approval from the China Securities Regulatory Commission (the " CSRC Approval").
Plan documents must be translated into Mandarin and submitted for approvals and Government filings. Companies should be mindful of this when determining the eligibility of employees to participate in the Plan, the benefits being granted and the exercise of any discretion. There are laws that prohibit discrimination against, and/or less favorable treatment of, employees on certain grounds, including gender, disability and part-time status. Therefore, awards of Restricted Stock and RSUs should be clearly designated as discretionary and additional to salary, to prevent this being deemed an illegal payment. There is a risk of employees claiming that they are entitled to compensation for loss of rights under the Plan where the Plan is amended or discontinued or where their employment is terminated.Įmployers are only permitted to compensate employees in cash and not in "negotiable securities" (i.e., benefits in kind).
The same obligation is unlikely to apply to social security contributions.ĭepending on the requirements of the relevant local tax bureau, the Issuer may be required to translate into Mandarin and submit the rules of the Plan and related grant documents to the local tax bureau.Ī deduction is available if the Subsidiary reimburses the Issuer for costs of the Plan. Failure to file and pay the amount of tax due is subject to penalties, ranging from 50 percent to three times the tax due. The Subsidiary has an obligation to withhold income tax and file individual income tax returns with the tax authorities. If the Subsidiary fails to comply with these filing requirements, any income on exercise will be taxed together with the salary income for that month, so that a higher marginal tax rate may apply to the total proceeds. Provided certain filing requirements are met, income on exercise will be taxed separately from the employee's monthly salary income and therefore a lower marginal tax may apply to this income. Social security contributions, including the Unified Pension Fund, may be payable depending on the practice and position taken by the local labor and social insurance bureau. Stock Option Plans: TaxĪn employee is generally subject to income tax on the gain on exercise (i.e., the excess of the fair market value of the Stock acquired over the aggregate exercise price).Ĭapital gains tax is also payable on the gain upon the net proceeds of sale of Stock.
Purposes outside that category need to be assessed on a case-by-case basis, and opt-in consent may be recommended in some cases. Processing of employee data for purposes directly connected to the employment relationship can generally be justified on the basis that the processing is necessary to fulfill the contract of employment. SAFE must be notified within three months in the event of any material amendment to the Plan. Following the initial approval, quarterly reports are required to be provided to SAFE on the status of the Plan. Obtaining approval for the Plan may be time-consuming and costly. The Subsidiary will also be required to establish a special onshore account through which all Plan-related payments must be made. The approval of the State Administration of Foreign Exchange (" SAFE") is likely to be required to operate the Plan. In practice, there is currently no formal process in place to obtain CSRC Approval for the grant of Options by a foreign company to Chinese resident employees. If Options are issued to more than 200 employees or officers of the Subsidiary, this may constitute a "public offering." A public offering is subject to approval from the China Securities Regulatory Commission (the " CSRC Approval").
A disclaimer should be included in the award agreement that acknowledges each employee's receipt of the Plan documents and the discretionary nature of the Plan and confirms that termination of employment will result in the loss of unvested rights.
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